There are over 500,000 homes in America with solar power systems that are owned by a third party, the largest portion of which are leased to homeowners. To-date it has been unclear how the real estate market values these systems.
A new study finds that when such homes are sold, they don't attract a premium over homes without solar power, but nor do they sell for less.
Because of the additional steps required in transferring a third-party owned solar system to a new buyer, the press had hypothesized a decrease in values (see, for example, LA Times, NPR, and Washington Post). Alternatively, a number of studies have found homeowner-owned solar systems add value (see, for example, Appraisal Journal, LBNL Report). Therefore, understanding how the real estate market reacts to third-party owned systems is important.
A new report titled "Leasing into the Sun: A Mixed Method Analysis of Transactions of Homes with Third Party Owned Solar," led by two researchers from the U.S. Department of Energy's Lawrence Berkeley National Laboratory (Berkeley Lab) in collaboration with two home appraisal experts, helps fill that gap.
The researchers employed two methodologies, a hedonic pricing model using data from almost 20,000 home sales spanning much of California, and a paired-sales technique investigating 18 transactions in San Diego.
Both approaches had similar results: an absence of evidence that buyers are willing to pay more or less for homes with third-party owned solar systems. The statistical modeling results found sale price premiums for homes with solar systems owned by the homeowner but not for third-party owned (TPO) photovoltaic (PV) homes. Similarly, the paired sales analysis conducted by two appraisers found essentially no difference in selling price when comparing TPO PV homes to otherwise similar non-PV homes sold around the same time and from the same neighborhood.
These results might indicate the obligations under the contract, both in terms of payments and other contract terms, offset whatever savings they enjoy, but not so much as to detract from the home's value. Similar qualitative results were found in a previously-released survey of buyers, sellers and real estate agents involved in TPO solar transactions in San Diego.
These results will benefit appraisers, real estate agents, and lenders in the secondary mortgage market who increasingly encounter PV homes and need to distinguish between those owned by the homeowner and those owned by a third party, and want to know how the market values them.
Researchers collected 230 TPO PV contracts from public records and found 113 that were transferred in a home sale. This is the largest number of such contracts analyzed to date. The study also analyzed the full set of 230 leases, which provides real estate practitioners a better understanding of what terms and details to expect when encountering them in the marketplace.
The full 2017 report is available for download on our website. Also available on the website is a PowerPoint describing the review of the almost 500 leases.
The new study builds on previous qualitative research involving a survey of buyers, sellers and real estate agents involved in the transactions of TPO solar homes in San Diego.
We appreciate the support from the U.S. Department of Energy SunShot Initiative, which made this work possible. Learn more at energy.gov/sunshot.